This information is current as of December 28th, 2020.
On Monday December 21st, 2020, Congress passed the Consolidated Appropriations Act of 2021. President Trump signed the bill into law on Sunday, December 27th, 2020. This 5,593 page bill (the longest ever passed by Congress) contains expenditure appropriations as well as tax law changes and additional stimulus and business aid programs. This was a rushed bill, so we expect mistakes, conflicts, and unintended consequences that will need to be sorted through. We obviously can’t cover all the items in the bill with our limited space here, so we are going to highlight what we think is most relevant.
Additional Stimulus Payment:
This is a direct government payment that is supposed to arrive in the coming weeks. The credit is $600 per taxpayer / spouse and $600 for each dependent child (under 17). Adult dependents do not qualify for a credit amount. There are the same 2019 Adjusted Gross Income (AGI) thresholds for stimulus payment phaseouts. These thresholds were $75,000 for individuals and $150,000 for Married Filing Jointly (MFJ). This stimulus payment is an advance of a 2020 tax credit. If you would qualify based on 2020 income but don’t under 2019 income, you will not receive a payment now but will receive the stimulus credit on your 2020 personal income tax return.
The additional federal unemployment benefits of $300 per week has been extended for 11 weeks.
Paycheck Protection Program (PPP):
For existing loans, there have been some changes related to forgiveness. The big news is that expenses used for PPP forgiveness ARE tax deductible and increase shareholders basis upon forgiveness. Many groups, including the AICPA, fought for this provision. There will be a simplified one page forgiveness certification for loans under $150,000. There are additional expenses (computing, others) that qualify for forgiveness in forgiveness calculations for the situations where forgiveness has not already been applied for. The covered period for forgiveness expenses no longer has to be either 8 weeks or 24 weeks — it can be anywhere in between those durations.
There is going to be a PPP Round 2, set to open in early 2021. This round will have some additional limitations, such as 300 employees or less, $2 million loan limit, and revenue in a 2020 quarter must have dropped 25% or more below the same quarter in 2019. The amount of the loans will still be 2.5x monthly payroll costs for most businesses, but for hospitality businesses (NAICS code starting in 72) the loan amounts will be 3.5x monthly payroll costs.
Economic Injury Disaster Loan (EIDL):
Economic Injury Disaster Loans are another program that helps businesses in need. The bill included up to a $10,000 EIDL Advance. It appears that additional funds will be available for this program. This grant component will also no longer reduce PPP forgiveness.
Employee Retention Credit (ERC):
The employee retention credit helps businesses that had 1) seen a quarterly 50% drop in revenue or 2) a government order fully or partially suspends business operations for part of a quarter. The 2020 credit is up to 50% of qualified wages paid (with limitations). This credit used to be not available if a company took a PPP loan, but that is no longer the case. In other words, you can claim both the ERC and receive a PPP loan as long as you do not use the same wages to qualify for both benefits.
For the first two quarters in 2020, the drop in revenue threshold has been reduced to 20% and the credit has increased to 70% of qualifying wages (with limitations). In our opinion, with both the 2020 and 2021 changes to this credit, it will become a bigger piece of the liquidity solutions for businesses.
Live Venues and Performing Arts:
Live venues that have been shut down may qualify for grants equal to 45% of 2019 revenue.
General Income Tax Changes
There are numerous income tax changes in this bill. For tax years 2021 and 2022, business meals are 100% tax deductible. For 2021, the above the line charitable donation limit increases to $600 for married couples. Numerous items that were expiring on 12/31/2020 have been extended, including many credits related to energy efficiency. In addition the bill extended the Work Opportunity Credit through 2025.
We hope this was a helpful overview of the most recent congressional changes. As always, reach out to a CPA firm to discuss the best options and impacts to your specific situation. If we can be of any help, please contact us at [email protected].
Caroline Montgomery, CPA (NC License Number 39017), MSA, is tax manager and partner of Adam Shay CPA, PLLC. The most rewarding part of what she does is helping business owners and individuals achieve their goals, all while working with a dynamic team that is growing quickly. The firm focuses on a proactive approach by encouraging clients to minimize taxes via income tax planning and projections, or by focusing on other areas of their business as part of the firm's Virtual CFO services. The firm also offers tax preparation, fraud and forensic accounting and tax issue resolution services. She moved to Wilmington in 2014 and started at the firm in 2015. Caroline graduated with her her undergraduate and graduate degree in 2010 from East Carolina University. She is actively involved with NourishNC as their Treasurer and enjoys volunteering with various organizations throughout New Hanover County. In her free time, Caroline enjoys spending time with her husband, Mike, and dog, Mason, as well as travelling and going to the beach.
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